Nowak Says Rates to Force Aid Plan for Small Business

By Martha M. HamiltonBy Martha M. HamiltonOctober 31, 1979

The chairman of a House small business subcommittee said yesterday that Congress may have to devise plans to help small businesses find credit if high interest rates and a slowdown in credit continue for long.

Rep. Henry J. Nowak (D-N.Y.) said that federal agencies may want to consider some types of interest rate subsidy or review of hardship cases if banks appear not to be doing enough to tide small business over during hard times.

Frederick H. Schultz, vice chairman of the Federal Reserve Board, said he expects the board's tight-money policies to begin dampening inflation within less than six months, allowing interest rates to fall.

In the meantime, he said, small businesses may suffer. "If I were a small businessman I might be worried too," he said. "The next few months could be very difficult for some businesses."

But he predicted that credit would continue to be available, and said that allowing inflation to continue unchecked would have presented a worse danger for small businesses.

Schultz said the Federal Reserve Board is doing what it can through "moral suasion" to encourage banks to deal kindly with small businesses.

"I talked to almost 100 banks. In each case I asked them if they were attempting to do something for small businesses," he said. "In each case, the answer was yes."

The National Small Business Association has urged the Federal Reserve Board to establish a "two-tier" discount rate for federal funds, which would make money more easily available at lower rates to small businesses.

An economist for the National Federation of Independent Business said that his organization has been encouraged by the Federal Reserve Board's actions.

Small businesses are likely to be hurt in the short run, as will homebuyers, said Edison R. Zayas, but they shouldn't "blame the Fed." The fault lies with elected officials who have turned over "the brunt of battling inflation to the Fed," he said.

If the Federal Reserve Board truly intends to limit the growth of money supply, small businesses will benefit in spite of the short term traumas, Zayas said. If not, "we would consider the Fed's recent actions to be a cruel hoax."